Stocks Soaring into Final Hour on Less Economic Pessimism, Falling Energy Prices

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Medical longs, Semi longs, Computer longs, Internet longs and Biotech longs. I covered some of my (EEM) short and all of my (IWM)/(QQQQ) hedges today, thus leaving the Portfolio 100% net long. The overall tone of the market is positive today as the advance/decline line is higher, almost every sector is rising and volume is above average. Investor anxiety is slightly above average. Today’s overall market action is bullish. Oil is falling again today despite T.Boone Pickens call that it would hit $100/bbl. within six months and a larger than expected crude inventory drawdown. This is mostly the result of the large dollar rally today. Also, Sanford C. Bernstein put out a report today saying that Saudi Arabia’s Ghawar field, the world’s largest, doesn’t face rapid declines in production as forecast by peak oil theorists. The US dollar continues to trade as if at the very least an intermediate-term bottom is firmly in place, which should continue to pressure commodity prices. Despite today’s mostly positive economic data, fed fund futures still imply a 44% chance for a 50 basis point cut at the meeting next week. I still think it is very possible, but want to see Friday’s jobs report to have more conviction. The 32% surge in refi applications this week is a big positive. If mortgage rates were to continue to fall, which I expect, strong refi activity would provide a cushion to consumer spending and the housing market, in general. I expect US stocks to trade mixed-to-higher into the close from current levels on less economic pessimism, bargain-hunting, lower energy prices and short-covering.

Today's Headlines

Bloomberg:
- US stocks rose the most in a week after signs of increased productivity and a closely watched private report on employment suggested the economy will avoid recession.
- Thomas H. Lee Partners raised $8.1 billion for leveraged buyouts, a sign that investors expect LBOs to rebound. The fund, the firm’s sixth and largest, will focus on North American companies.
- Paccar Inc.(PCCR), the world’s fifth-largest market of medium- and heavy-duty trucks, rose as much as 8.7% after Merrill(MER) recommended the stock on a projected boost in demand.
- Electronic Data Systems(EDS), the second-biggest provider of computer services, rose the most in more than two-years in NY trading after announcing it will repurchase as much as $1 billion in stock.
- Intel Corp.(INTC) climbed to the highest in a month after Thomas Weisel Partners raised its stock rating for the world’s biggest semiconductor maker to “overweight” because personal computer demand may accelerate next year.
- Companies in the US added 189,000 jobs in November, more than triple the amount economists had forecast, a private report showed.
- Hedge funds were unprepared and damaged by this year’s collapse of the subprime credit market, according to a survey at the GAIMInvest conference.
- Trouble in the US market for mortgages to people with poor credit has not damped capital inflows into the hedge fund industry, said Ken Heinz, president of Chicago-based Hedge Fund Research Inc.
- American International Group(AIG) CEO Sullivan said writedowns from the US housing market are “manageable,” boosting the shares more than 4%.
- The risk of corporate bond defaults is falling on speculation that US regulators and lenders are close to agreeing on a plan to avert a jump in mortgage foreclosures, according to credit-default swap traders.
- The US dollar is rising against the euro and yen as policy makers in the US and Europe stepped up efforts to stem the spread of subprime-loan losses and a private report showed the job market in the US remains healthy.
- Mortgage applications in the US jumped 22.5% last week, the most in three years, led by a 32% surge in refinancing as long-term interest rates dropped to two-year lows.
- Crude oil is falling $.48/bbl. after the EIA said oil supplies fell substantially, but distillate and gasoline inventories jumped significantly more than estimates.

Wall Street Journal:
- For years, media and technology companies have been ensnarled in a battle over the rights to video posted online. Now ratings giant Nielsen wants to be the policeman.
- NY State prosecutors subpoenaed Wall Street firms including Merrill Lynch(MER), Baer Stearns(BSC) and Deutsche Bank AG seeking details on packaging and selling of debt linked to high-risk mortgages.
- Bullish Appetite for China Begins to Wane. Fund Managers Pull Back, Sensing Bubble May Burst Sooner Rather Than Later.

TechCrunch.com:
- Yahoo TechTicker To Go After CNBC Crowd.

Dow Jones:
- Nokia Siemens Networks sees the US market as “a good growth” opportunity as fourth-generation network technology is needed to handle data transfers, citing CEO Simon Beresford-Wylie.

AP:
- Hong Kong’s customs department said it found toxic levels of chromium, lead and barium in two Chinese-made makeup sets for children.

Bear Radar

Style Underperformer:

Mid-cap Value (+1.51%)

Sector Underperformers:

Airlines (-.84%), Restaurants (-.69%) and Hospitals (+.15%)

Stocks Falling on Unusual Volume:

FMD, CMCSA, CLNE, TWC and SONC

Productivity Soars, Unit Labor Costs Decline, Factory Orders Surge, ISM Non-Manufacturing Decelerates

- Final 3Q Non-farm Productivity rose 6.3% versus estimates of a 5.9% gain and a prior estimate of a 4.9% increase.

- Final 3Q Unit Labor Costs fell 2.0% versus estimates of a 1.2% decline and a prior estimate of a .2% decrease.

- Factory Orders for October rose .5% versus estimates of unch. and a .3% gain in September.

- ISM Non-Manufacturing for November fell to 54.1 versus estimates of 55.0 and a reading of 55.8 in October.

BOTTOM LINE: Worker productivity in the US accelerated sharply in the third quarter, causing labor costs to drop by the most since 2003, Bloomberg reported. A separate report from ADP Employer Services said companies added 189,000 jobs in November, more than triple the forecast. As well, Challenger reported a 4.7% decline in job cuts for November. The 3Q increase in productivity reflected the surge in economic activity. US GDP jumped 4.9% last quarter, the most in four years. Moreover, productivity has risen by 2.7% over the last year, the most since the second quarter of 2004. The drop in Unit Labor Costs, the main component of inflation, is a big positive and has likely contributed to the recent decline in the 10-year yield. I continue to expect the job market to remain healthy over the intermediate-term without generating substantial unit labor cost increases.

Orders at US factories unexpectedly rose in October by the most since July, Bloomberg reported. The increase in factory orders was lead by a 1.3% gain in non-durable goods. Demand for plastics, beverages, chemicals and petroleum climbed. Manufacturers had enough goods on hand to last 1.23 months versus 1.24 months worth in September. I continue to expect manufacturing to help boost overall US economic growth as companies gain confidence in the sustainability of the current expansion and rebuild depleted inventories as exports boom.

US services industries continued to expand in November, Bloomberg reported. The New Orders component of the index fell to 51.1 from 55.7 the prior month. The Employment component of the index fell to 50.8 versus 51.8 the prior month. However, the Backlog component jumped to 48.5 from 43.5 the prior month. The Prices Paid component rose to 76.5 from 63.5 the prior month. I expect ISM Non-manufacturing to continue to show expansion over the intermediate-term as consumer spending remains only modestly below long-term average rates.

Bull Radar

Style Outperformer:

Small-cap Growth (+1.74%)

Sector Outperformers:

Disk Drives (+4.05%), Homebuilders (+3.48%) and Steel (+3.09%)

Stocks Rising on Unusual Volume:

GDP, FIS, BTH, PDA, PSS, GES, CTV, SOLF, IDCC, SYNO, ARTC, GLBC, CPRT, AVAV, COCO, UNTD, TESO, NWEC, PTNR, AIXG, TSRA, ESLR, PWRD, ININ, DDUP, CFSG, STEC, KTC, CCOI, NVDA, BBBB, TXRH, TVL, FRE and XMSR

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